Requirement 1: Compute the annual net after-tax cash inflows

	Year 1	Year 2	Year 3	Year 4	Year 5
Cash inflow from operations (pre-tax)	$ 80,000	90,000	110,000	120,000	130,000
Depreciation on tax return	(70,000)	(70,000)	(80,000)	(40,000)	(40,000)
Taxable income	10,000	20,000	30,000	80,000	90,000
Tax rate	21%
Cash payment for income taxes	$ 2,100	4,200	6,300	16,800	18,900

Requirement 2: Now that we know the cash payment for income taxes, we can compute the after-tax cash flows.

	Year 1	Year 2	Year 3	Year 4	Year 5
Cash inflow from operations	$80,000	$90,000	$110,000	$120,000	$130,000
Cash payment for income taxes	(2,100)	(4,200)	(6,300)	(16,800)	(18,900)
After-tax cash flows	77,900	85,800	103,700	103,200	111,100

Requirement 3: Compute the net present value and indicate whether it is positive or negative (round amounts to nearest dollar).

Year	Annual net after-tax cash inflows	PV Factor	Present Value
1
2
3
4
5
	Total present value
	Investment required		300,000
	Net positive present value

Requirement 4: Compute the cash payback period.

Year	Annual net after-tax cash inflows	Cumulative Cash Payback
1
2
3
4
5

Requirement 5: Compute the average rate of return

Annual net income from investment	Year	Amount
	1
	2
	3
	4
	5
	Total
Average annual net income from investments
Average investment
Average rate of return

Based upon your results for Requirements 3, 4 and 5, would you recommend U of M make this $300,000,000 investment?